ATLANTIC BEACH, NY—What are some of the most common commercialmortgage underwriting questions? What are the reasons a loan mightbe approved or turned down? Find out the methodology employed bycommercial mortgage underwriters when presented with a loanapplication in this below column (in Q&A format) fromStephen Sobin, president of SelectCommercial Funding LLC. Sobin has more than 30 yearsexperience underwriting, approving, and funding commercial mortgageloans.

|

The views expressed below are the author's own.

|

Q: Is there a minimum credit score that I musthave?

|

A: All commercial mortgage loans areunderwritten based on many different qualifications, however mostlenders like to see credit scores of 650 or higher.

|

Q: Are there any minimum liquidity or networth requirements?

|

A: Lenders often expect to see minimumnet worth equal to the loan amount and six to nine months ofmonthly payments as a cash reserve.

|

Q: Am I able to refinance and take cash out ofmy property?

|

A: Yes. However, situations where anowner seeks to take cash out after a short period of ownership willbe reviewed carefully.

|

Q: Can I buy a commercial property with nomoney down?

|

A: No. These days, lenders will require acash down payment from the borrower. Typically, lenders will lendup to 80% LTV on a multifamily property and 75% on a commercialproperty. Owner occupied properties might qualify for up to 90%financing.

|

Q: I am a first time buyer. Is thisacceptable?

|

A: Lenders will look for a borrower tohave experience owning and/or managing similar properties. In theevent that a borrower does not have experience, a professionalproperty manager might be required.

|

Q: Are there any restrictions regardingneighborhoods or areas to consider?

|

A: Lenders will expect to see apopulation count of 50,000 or greater in the metropolitan areawhere the property is located. Properties in highly rural areaswill be underwritten very carefully. The area should alsoexhibit positive employment and demographic trends.

|

Q: How about property condition? What do Ineed to know?

|

A: Lenders expect to see properties ingood repair that do not require major rehabilitation or suffer fromdeferred maintenance. Properties that are in rentable condition aremost preferred. The property should also be free of anyenvironmental hazards or risks.

|

Q: What do I need to know about when lookingat a property's rent roll?

|

A: Is the property occupied orvacant? Are there long-term leases or short term expiringleases? Are the tenants' credit worthy and paying their rent ontime? Do collections match the rental agreements? Is thereenough cash flow to cover the proposed mortgage?

|

Q: What do I need to know about when lookingat a property's operating statement?

|

A: The operating statement is theprofit/loss statement for the property. It should show goodoperating performance with no material declines in revenue or netoperating income over the past year. The income should bereviewed to see if it matches the lease agreements. The expensesshould be analyzed for accuracy and completeness. The net operatingincome must be sufficient to cover the proposed mortgagepayment.

|

Q: Are there other items I should look atupfront when considering a property?

|

A: You should review the applicablezoning to determine if the property is in compliance. You shouldcheck to see if the property has a valid certificate of occupancy.The property should also have all applicable licenses and permitsfor its intended use.

|

Q: I am considering a commercial property.What should I do first?

|

A: You should contact a competentcommercial broker for advice. The broker will help youanalyze the investment and make sure you qualify for a loan. Thebroker should offer multiple options or choices for you toconsider. You should choose a broker that does not require anupfront application fee.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.